How To Make $100,000 A Year Cash Flow With One Mobile Home Park Investment

How To Make $100,000 A Year Cash Flow With One Mobile Home Park Investment

By Frank Rolfe

With the national economy in free fall, and millions of jobs being cut across all industry segments, many people are trying to formulate a plan to replace their income if they get laid off. And to many people, that income can approach $100,000 or more. So how do you replace $100,000 of income. For many people, the answer may be in a good old fashioned trailer park.

The type of park you'll need

To make an immediate $100,000 in cash flow with a mobile home park, you'll need to find a park that has around 80 lots. A park with 80 lots is going to cost around $800,000 and will require about $160,000 down (although in select cases, you may be able to get away with $80,000 down).

The park will need to have city water and city sewer services, and be in a market of at least 100,000 population.

How the deal must be structured

You will need to buy the park with seller financing. You'll want to put between 10% and 20% down, and the note should be non-recourse. Try and get a note length of at least 7 years, so that you have plenty of time to refinance it before the loan comes due. If you are unable to seller finance it, you will be burdened with two things: 1) a larger down payment, as banks right now want around 25% down and 2) banks will only give you recourse debt.

How to create the $100,000 of cash flow

Your goal is to create an additional $100 per month of cash flow per pad. You basically have two components to this 1) raise revenue and 2) cut costs. Let's go over raising revenue first.

Mobile home park residents are at a great disadvantage when it comes to raising rents. It costs them $3,000 to move their home. So unless they have $3,000 in cash burning a whole in their pocket, they really have no way to move out if they don't like the new rent amount.

Most parks you can find for sale are under-market in their rent. So you'll need to find one that is $50 per month under market � which is not that hard to do. That $50 rent increase is going to get you half way to your $100,000 per year goal.

In some parks, you will also find vacant park-owned mobile homes. Getting these back in service may also be a critical path to getting the rent up at least $50 per pad.

Now let's look at the expenses. The single largest cost in any mobile home park is the water and sewer. In most parks it equals 10% of the total revenue. So this is your first stop in trying to get the costs down. Often you can accomplish this with finding and fixing leaks in the system, or leaks in mobile homes. Other times, you will need to separately sub-meter each space to make sure that the tenant conserves. And in many cases, you'll want to bill the customer for their own service.

The second big area to attack is the management cost. In many parks, the manager that is getting paid $30,000 per year can be replaced for 1/3 of that. That one step alone can often get you $20 per pad per month in savings.

Here's the score card.

Getting that $100,000 of cash flow is predicated on raising rents and lowering costs an average of $100 per month per lot. If you can get that done, then you will have 80 lots x $100 per month = $96,000 of cash flow per year. But that's not all. You also have to factor in your cash-on-cash return on the money you put down. That will push you over the $100,000 mark.

Next steps.

As the mobile home park industry is an extremely odd niche, it will definitely be in your favor to learn more about it, by taking a course on mobile home park investing. You can also find thousands of parks for sale without even leaving your house, by visiting such sites as Mobilehomeparkstore.com and Loopnet.com.

The economy isn't wasting any time falling apart. Should you be wasting time not getting started?

Frank Rolfe has been an investor in mobile home parks for almost 30 years, and has owned and operated hundreds of mobile home parks during that time. He is currently ranked, with his partner Dave Reynolds, as the 5th largest mobile home park owner in the U.S., with over 250 communities spread out over 25 states. Along the way, Frank began writing about the industry, and his books, coupled with those of his partner Dave Reynolds, evolved into a course and boot camp on mobile home park investing that has become the leader in this niche of commercial real estate.

After a half a century of combined years in the real estate business, MHU.com is the only place that will give you the good, bad and the ugly details on Mobile Home Park Investing.